What Is Canada's Departure Tax, and What Does It Actually Catch?

Canada’s departure tax isn’t a separate exit fee. Ceasing to be a resident of Canada deems you to have disposed of each property you own at fair market value under section 128.1(4)(b) of the Income Tax Act, and to have reacquired it at that same figure under paragraph (c). Half of any resulting capital gain is a taxable capital gain under ITA 38(a). Five subparagraphs carve property out of that deemed sale, Canadian real property among them, and three elections change what you pay or when.

What is Canada’s departure tax, exactly?

It’s a deemed sale, and there’s no separate fee attached to it. Section 128.1(4)(b) deems you to have disposed of each property you own for proceeds equal to its fair market value when you cease to be a resident of Canada, at an instant the statute fixes a fraction before that, and paragraph (c) deems you to have reacquired the same property at a cost equal to those proceeds. Nothing is sold and no money moves. Whatever the five subparagraphs don’t carve out sits inside that deemed sale, and half of any resulting capital gain is a taxable capital gain under ITA 38(a).

“the taxpayer is deemed to have disposed, at the time (in this paragraph and paragraph (d) referred to as the “time of disposition”) that is immediately before the time that is immediately before the particular time, of each property owned by the taxpayer other than, if the taxpayer is an individual, … for proceeds equal to its fair market value at the time of disposition, which proceeds are deemed to have become receivable and to have been received by the taxpayer at the time of disposition” and “(c) the taxpayer is deemed to have reacquired, at the particular time, each property deemed by paragraph (b) or (b.1) to have been disposed of by the taxpayer, at a cost equal to the proceeds of disposition of the property” (ITA 128.1(4)(b) and (c))

The subsection those paragraphs sit in carries the marginal note “Emigration” and opens “For the purposes of this Act, where at a particular time a taxpayer ceases to be resident in Canada”. So the trigger is the cessation of Canadian residence and nothing else. The flight doesn’t do it. Neither does the visa or the moving truck. Working out when residence actually ceased is its own job, and it runs through the order the residency tests run in, and when the treaty tie-breaker even starts.

The CRA describes the same mechanic in plainer words: you are “considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount”, which it calls a deemed disposition. This page covers what that deemed sale is, what it reaches, the elections that move the outcome, and the dates each consequence keys to. The forms, the filing sequence and the US side each belong to a sibling guide, and the routing map at the bottom hands you to the right one.

Why does Canada charge tax on a sale that never happened?

Because the statute says so. Section 128.1(4)(b) fixes the deemed sale at an instant while you’re still a Canadian resident. Section 115(1) is a different rule for a different person: it applies to “a person who at no time in the year is resident in Canada”, and its paragraph (b) picks up capital gains from dispositions of taxable Canadian property, other than treaty-protected property. That’s what the two provisions say. Neither says why Parliament wrote them, and this page doesn’t guess.

“the taxable income earned in Canada for a taxation year of a person who at no time in the year is resident in Canada is the amount, if any, by which the amount that would be the non-resident person’s income for the year under section 3 if … (b) the only taxable capital gains and allowable capital losses referred to in paragraph 3(b) were taxable capital gains and allowable capital losses from dispositions, other than dispositions deemed under subsection 218.3(2), of taxable Canadian properties (other than treaty-protected properties)” (ITA 115(1), stem and paragraph (b))

We looked for a Department of Finance or CRA statement of purpose and didn’t find one, so the two provisions above are described and nothing is inferred from putting them side by side. Worth saying why we’re being that careful. “Canada takes the gain before it escapes at the border” is the story everyone tells, and s.115(1)(b) is the reason it doesn’t hold as a general rule: taxable Canadian property stays inside Canada’s reach after you leave, under that very paragraph. Departure isn’t the last moment Canada can tax a gain, so a last-chance rationale isn’t one this page will assert.

Note where “taxable Canadian property” appears in that pair of provisions and where it doesn’t. Under paragraph (b) it’s what keeps gains on property, other than treaty-protected property, inside Canada’s reach after you leave. It isn’t the exclusion list for the deemed sale itself, and treating it as though it were is the most expensive mistake on this topic.

What property is exempt from Canada’s departure tax?

Five subparagraphs of section 128.1(4)(b), and they’re narrower than most people expect. Real or immovable property situated in Canada, Canadian resource property and timber resource property are out under (b)(i). Property of a business you carry on through a Canadian permanent establishment is out under (b)(ii). An excluded right or interest, the defined class holding registered accounts and pensions, is out under (b)(iii). A short-term resident’s pre-arrival and inherited property is out under (b)(iv). Property covered by a returning-resident election is out under (b)(v).

Excluded by	In plain terms	What that row does not cover
s.128.1(4)(b)(i)	“real or immovable property situated in Canada, a Canadian resource property or a timber resource property”	This is not an exclusion for “taxable Canadian property”; that phrase belongs to the entering-Canada rule. Shares of a company that owns Canadian real estate are a separate property from the real estate, and the stem still reaches them.
s.128.1(4)(b)(ii)	Capital property used in, Class 14.1 property of, or inventory of a business you carry on through a Canadian permanent establishment	The permanent establishment has to exist at the particular time. Shares of a corporation are a different property from the corporation’s own assets.
s.128.1(4)(b)(iii) with s.128.1(10)	Excluded rights or interests: RRSP, RRIF, RESP, RDSP, TFSA, FHSA, pensions, annuities and a right under a subsection 7(1) agreement, among others	The class is defined rather than illustrative, so read s.128.1(10) before naming an account. The departure rule carries no paragraph (k) carve-back; that proviso sits in the entering-Canada rule.
s.128.1(4)(b)(iv)	If you aren’t a trust and weren’t resident in Canada for more than 60 months in the 120 ending at the particular time: property you owned when you last became resident, or inherited afterwards	Anything you bought after arriving is outside this subparagraph, and is caught unless another of the five takes it out. It counts months of residence inside a 120-month window, so it isn’t a simple “five years before you left” test.
s.128.1(4)(b)(v) with s.128.1(6)(a)	Property covered by a returning-resident election	Available only on coming back to Canada, by your filing-due date for that year, and only for property that was taxable Canadian property throughout the absence, a condition s.128.1(6.1) deems met for some property where the emigration was before March 5, 2010.

Two things people believe are on that list and aren’t. Personal-use items. There is no personal-use exclusion anywhere in ITA 128.1(4)(b), so the furniture and the car are deemed sold along with everything else. What spares you on small items is arithmetic rather than an exemption: ITA 46(1) deems both the adjusted cost base and the proceeds of personal-use property to be the greater of $1,000 and the real figure, so an item whose cost and value are both under $1,000 produces no gain. The T1161 figures. The $10,000 figure people half-remember excludes an item of personal-use property from “reportable property” in ITA 128.1(10), which governs what goes on the T1161 list rather than what Canada deems you to have sold.

Leaving Canada and entering Canada use different exclusion lists

Both rules live in the same section, ten lines apart, with near-identical opening words, and the differences can decide the answer for the largest asset on the list.

	Entering Canada, s.128.1(1)(b)	Leaving Canada, s.128.1(4)(b)
First exclusion	”property that is a taxable Canadian property"	"real or immovable property situated in Canada, a Canadian resource property or a timber resource property”
Excluded right or interest	subparagraph (iv), “other than an interest described in paragraph (k) of the definition”	subparagraph (iii), with no carve-back
Short-term resident rule	absent	subparagraph (iv), 60 months inside 120

Both texts sit on the same fetched page. The practical consequence: shares of a company that owns Canadian real estate are a different property from the real estate, and they are caught unless one of the five subparagraphs of s.128.1(4)(b) takes them out. Reach for the familiar phrase and you can write a private company’s shares out of the calculation entirely.

Canadian real estate is excluded from the deemed sale by ITA 128.1(4)(b)(i), which leaves out “real or immovable property situated in Canada”. A Canadian rental property or a Canadian home isn’t deemed sold on your way out. What a later actual sale of it costs, and whether it costs anything, runs on rules this page doesn’t state, and they live in two siblings: what happens when you actually sell the Canadian property Canada left out, and what you owe on each side when you sell the Canadian home after the move.

Does the departure tax apply to my stocks, and what about my RRSP and TFSA?

Shares in a non-registered account are caught unless one of the five subparagraphs of s.128.1(4)(b) takes them out, and registered accounts are out. The deemed sale reaches each property you own, and the CRA’s own illustration of property it could include opens with shares. Your RRSP, RRIF, RESP, RDSP, TFSA and FHSA are excluded rights or interests under section 128.1(10), so leaving Canada doesn’t deem anything inside them sold. The short-term-resident rule at (b)(iv) can still put shares you owned before you arrived outside the deemed sale. What the US does with those accounts is a separate question.

“excluded right or interest of a taxpayer who is an individual means (a) a right of the individual under, or an interest of the individual in a trust governed by, (i) a registered retirement savings plan or a plan referred to in subsection 146(12) as an “amended plan”, (ii) a registered retirement income fund, (iii) a registered education savings plan, (iii.1) a registered disability savings plan, (iii.2) a TFSA, (iii.3) a FHSA,” (ITA 128.1(10))

Most investment assets outside those accounts are caught: a non-registered brokerage account, shares in a private company, crypto, and a rental property located outside Canada. Private-company shares are usually the slowest line to value and the one worth starting earliest.

Employee security options sit in a place that surprises people. A right under an agreement referred to in subsection 7(1) is an excluded right or interest under s.128.1(10) paragraph (c), so the move itself doesn’t deem it sold. That settles the deemed-disposition half only. What the T1161 asks you to list is a separate question on its own definition, and it belongs with the forms, the penalties and the worked tax math: T1161, T1243 and T1244. Whether a particular equity plan is even such an agreement is fact-specific.

The registered accounts each have a US-side story, and it starts once you’ve landed rather than on the way out. For the RRSP, what the RRSP costs to draw down once you are in the US is the decision with money attached. For the TFSA, why the TFSA that Canada leaves alone becomes a US reporting question covers a position that isn’t settled either way.

When does the deemed disposition happen, and how is your departure date fixed?

Four moments, and three of them can fall on different days. Residence ceases at what the statute calls the particular time, which the CRA usually treats as the latest of the day you leave, the day your family leaves, and the day you become a resident of the country you settle in, except where you’re resettling in a country you lived in before Canada, when the CRA usually uses the day you leave. The deemed sale sits an instant earlier, at the time immediately before the time immediately before that. For a living individual the balance-due day is the following April 30.

Moment	What fixes it	What keys to it	What doesn’t
A. The particular time: Canadian residence ceases	The facts of your residency, with the CRA’s administrative test that you usually become a non-resident on the latest of three days, alongside its case where you usually become one on the day you leave if you’re resettling in a country you lived in before Canada	The whole of s.128.1(4) fires here; the deemed reacquisition happens here under paragraph (c); the 120-month short-term-resident window ends here	The deemed sale itself, which the statute puts at B
B. The time of disposition: immediately before the time immediately before A	ITA 128.1(4)(b), in those words	The deemed sale at fair market value, with the proceeds deemed to have become receivable and to have been received at that same instant, which is before your residence ends	The reacquisition, which the statute puts at A
C. The balance-due day: April 30 of the following year	ITA 248(1) paragraph (c), for a living individual	The s.220(4.5) deferral election deadline, which the CRA also states flat as April 30, though s.220(4.54)(a) says the Minister may extend the time for making that election where in the Minister’s opinion it would be just and equitable to do so	The return deadline, which ITA 150(1)(d) puts at June 15 for an individual who carried on a business in the year
D. The event that ends a deferral	An actual disposition of the property, or immigrating to Canada again; the CRA hedges both with “may”	Payment of the deferred amount, which the CRA says is “due by April 30 of the year following the disposition”	Anything in the emigration year itself. A deferral moves the payment and doesn’t cancel it

The gap in row C is the one that catches people out. ITA 248(1) puts the balance-due day at April 30 in the following taxation year for an individual, with no exception for carrying on a business, while ITA 150(1)(d) gives the return itself until June 15 where that individual carried on a business in the year. So the deferral election can lapse roughly six weeks before the return it would have travelled with is even due. Missing it isn’t necessarily the end: ITA 220(4.54)(a) says that “the Minister may at any time extend … the time for making an election under subsection (4.5)” where in the Minister’s opinion it would be just and equitable to do so. That’s a discretion you’d have to ask for rather than a second deadline, so treat April 30 as the date.

The departure date itself is a fact you have to be able to prove, and the CRA’s administrative starting point is that you “usually become a non-resident of Canada for income tax purposes on the latest of” the three days above. The same CRA section then carves out the case that fits a lot of people leaving for the US: “If you lived in another country before living in Canada and you leave Canada to resettle in that country, you usually become a non-resident of Canada on the date you leave Canada. This applies even if your spouse or common-law partner temporarily stays in Canada to dispose of your home.” That’s a generally earlier date than the latest of three, so if you’re going back where you came from, check which of the two you’re in before you pin anything. It also says that someone who leaves and keeps residential ties is “usually considered a factual resident of Canada and not an emigrant”, though a person the treaty pushes to the other country “may be considered a deemed non-resident”, and deemed non-residents “are subject to the same rules as emigrants”. The ties analysis lives in the order the residency tests run in, and when the treaty tie-breaker even starts, and the evidence you should be keeping lives in the full leaving-Canada checklist, in the order the jobs actually happen.

Can you defer paying the departure tax, and what else can you elect?

Yes, and two more elections come with it. The ITA 220(4.5) deferral is elected for the whole emigration year, not property by property, on or before your balance-due day, which ITA 248(1) puts at April 30 of the following year for a living individual, though s.220(4.54)(a) says the Minister may extend that time where in the Minister’s opinion it would be just and equitable. The CRA says you can elect “regardless of the amount”, and says that above a federal tax figure the forms guide publishes you have to furnish security. It defers the payment and doesn’t reduce the tax.

Election	Statute and form	What it does	Deadline, and which clock	Who it isn’t for
Defer the payment	ITA 220(4.5), Form T1244	Interest and penalties get computed as if the secured amount had been paid, for any period throughout which the Minister accepts security	Your balance-due day for the emigration year, which ITA 248(1)(c) puts at April 30 for a living individual, and it doesn’t move to June 15 when the return does, though s.220(4.54)(a) says the Minister may extend the time for making the election where in the Minister’s opinion it would be just and equitable	Rights to a benefit under, or interests in a trust governed by, an employee benefit plan, which the subsection’s own opening words leave out
Pull excluded property in	ITA 128.1(4)(d), Form T2061A	Brings property described in (b)(i) or (b)(ii) into the deemed sale, property by property, at fair market value	In prescribed form and manner, with the departure-year deemed dispositions the CRA directs it to. Neither the subsection nor the CRA page cited here fixes a separate date for it	Excluded rights or interests, since the subsection allows it only for property described in (b)(i) or (b)(ii), and anyone who hasn’t priced the income and loss collars in (d)(ii) and (d)(iii)
Unwind on return	ITA 128.1(6)(a) and (6)(c), written election	Two statutory routes: (6)(a) switches paragraphs (4)(b) and (c) off for property that was taxable Canadian property throughout the absence; (6)(c) instead reduces the reported proceeds, and the cost on re-entry, for property the arrival rule deems disposed	On or before your filing-due date for the year you re-establish Canadian residency, in both paragraphs and per the CRA	Anyone whose emigration time was on or before October 1, 1996, or who no longer owns the property

Security isn’t automatically something you have to go out and post. ITA 220(4.51) deems the Minister to have accepted security for a first slice of the bill: the lesser of the tax a Canadian-resident trust would pay on $50,000 of taxable income, which is limb (a), and the greatest amount the Minister is required to accept security for under s.220(4.5), which is limb (b). ITA 220(4.52), marginal note “Limit”, then caps the whole deemed acceptance at the amount by which your tax for the year exceeds what it would be if the Act were read without s.128.1(4). So it’s a formula with two ceilings on it rather than a flat allowance. What the election does is move the payment, in the CRA’s words to “when you sell (or otherwise dispose of) the property”. The dollar floor above which you have to furnish real security, and the tax math that tells you whether you are near it, are both in the forms, the penalties and the worked tax math: T1161, T1243 and T1244. The CRA also notes you “may also be required to provide security to cover any applicable provincial or territorial tax payable”. Which province taxes the departure year, and why it is not always December 31, is worked through in moving from Ontario to Florida.

Deferral is not forgiveness, and two later events can end it. The CRA says that when you immigrate to Canada, “if you had previously elected to defer payment of departure tax, you may now have to pay the deferred tax”, and that after emigrating, an actual disposition of the property “may mean that you must pay some or all of the deferred amount”, with payment “due by April 30 of the year following the disposition”.

The second election runs the other way. You can elect to pull excluded real property into the deemed sale under ITA 128.1(4)(d), which is a deliberate choice you’d have to make, and the CRA’s form for it is Form T2061A, “Election by an Emigrant to Report Deemed Dispositions of Property and any Resulting Capital Gain or Loss”. Subparagraphs (d)(ii) and (d)(iii) then impose income and loss collars this page doesn’t unpack, which is why it’s a file-specific call rather than a default move.

The third is only available if you come back, and what the CRA presents as one election is two paragraphs in the statute. Someone who ceased Canadian residence after October 1, 1996 and later re-establishes it can elect to adjust what they reported, which the CRA calls an election to “unwind” a previous deemed disposition, available if you still own some or all of the property, by written request on or before the filing due date for the year you re-establish residency. Both routes behind that CRA description are statutory, and they are two different mechanisms. Section 128.1(6)(a) is the narrower one: it switches paragraphs (4)(b) and (c) off entirely, and it reaches only property that was taxable Canadian property throughout the absence, a condition s.128.1(6.1) deems met for property that was taxable Canadian property on March 4, 2010 where the emigration was before March 5, 2010. The reduction route the CRA describes for other property is s.128.1(6)(c), which doesn’t switch the rule off: it cuts your emigration-year proceeds, and your cost of acquiring the property on the way back in, by the least of the gain that would otherwise have arisen, the property’s fair market value when you return, and an amount you specify in the election. Two mechanisms, so don’t treat them as one.

One thing the Canadian elections don’t do is fix your US position. Paying Canadian departure tax does not by itself move your US cost base: under IRC 1012 your US basis is still what the property cost you, and the fix is a separate US-side treaty election on its own clock. Note which way that clock runs. The election is made on your timely filed US return for your first taxable year ending after the change of residence, which for a calendar-year filer is the departure year’s own return, so it can fall due before the Canadian balance-due day rather than after it. That’s the whole subject of why paying Canadian departure tax does not give you a US cost base on its own, and it’s worth reading before you sell anything.

What does the departure tax look like on a real set of assets?

Three fact patterns, and every one of them stops at the taxable capital gain. Half of a capital gain is a taxable capital gain under ITA 38(a), subject to the carve-outs that paragraph names, and the rate that then applies depends on the rest of your Canadian return, so nothing below computes a tax dollar. All figures are Canadian dollars, before any tax, and rounded. The first example sorts a mixed portfolio into caught and excluded, the second lays out the calendar, and the third runs the short-term-resident rule.

What should you do, and in what order?

Six jobs, and the order matters more than the arithmetic. Pin the date your Canadian residence actually ended, because every other item keys to it. Inventory what you own and value it at that date. Sort the inventory by subparagraph into caught and excluded, starting with anything private or hard to value. Decide on the s.220(4.5) deferral before your balance-due day rather than before your return is due. Treat the US basis question as its own filing on its own clock. Then run the Canadian departure forms with the final return.

The job	Where it lives
Working out whether you’ve actually stopped being a Canadian resident, and in what order the tests run	the order the residency tests run in, and when the treaty tie-breaker even starts
Deciding whether the NR73 is worth filing	whether to send the CRA a Form NR73 when you leave
Doing the jobs in sequence, with the ties list and the departure-date evidence	the full leaving-Canada checklist, in the order the jobs actually happen
Filling in the forms and running the tax math on whatever was caught	the forms, the penalties and the worked tax math: T1161, T1243 and T1244
Getting a US cost base for property Canada deemed sold	why paying Canadian departure tax does not give you a US cost base on its own
Selling the Canadian property the deemed sale left out	what happens when you actually sell the Canadian property Canada left out
Selling the Canadian home after the move	what you owe on each side when you sell the Canadian home after the move
Renting the Canadian property out instead of selling it	what Canada wants from Canadian rent once you’re a non-resident
Drawing the RRSP down once you’re in the US	what the RRSP costs to draw down once you are in the US
Working out what the TFSA costs on a US return	why the TFSA that Canada leaves alone becomes a US reporting question
Putting a number on your own holdings	run your own numbers through the departure tax estimator

Nothing on that list is one-size-fits-all. The right answer depends on what you own, where you’re going, and when, and several things here run on a clock: the departure date you can prove, the deferral election on your balance-due day, and the US basis election on the US return that carries it. Each of them is cheap to get right early and awkward to fix late.

The cheapest place to start is a written read on your own file. The Cross-Border Assessment is a fixed $249 and covers your specific move, accounts and dates before anything gets filed. If you want to see what a departure year involves first, our departure-year service lays it out, and you can run your own numbers through the departure tax estimator in the meantime.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.